Under New Law Taking Social Security at 65 Makes Sense for Most

Does it make financial
sense to begin taking Social Security retirement benefits when reaching age 65
or is postponing the benefits a better option?
Social Security benefits increase by 6% for every year beyond age 65
that they are not taken. In certain
limited circumstances, it may make sense to delay.

A change in federal law in the year 2000 allows people to continue to
work after age 65 without incurring any financial penalty with regard to their
Social Security benefits. Therefore, in
most situations, taking benefits should not be delayed.

What the new law does.
Under prior law, an annual earnings limit applied to people aged 65 to
69. For every $3 earned over the limit
of $17,000 (the year 2000 amount), $1 in Social Security benefits had to be
given back to the government. Under the
new rules, individuals aged 65 or over can earn as much as they please without
having to forfeit any Social Security benefits. For people aged 70 and over, there wasn’t an applicable limit on
earnings.

People aged 62 through 64 who have begun taking Social Security benefits
are still subject to an earnings limit.
They must return $1 in benefits for every $2 earned over the limit. For 2002, the annual earnings limit for such
individuals is $11,280.

Who should delay beyond age 65?
The short answer is that most people are better off taking their
retirement benefits at age 65, because one must live a long time to recoup the
value of the foregone benefits. For
example, if one is 65 and they delay the onset of benefits until age 70, they
could end up receiving as much as $430 per month more by the time their
benefits begin. However, to make it
financially worthwhile to delay the benefits, they would have to live well past
age 85.

The analysis of this question depends on several factors, in addition to
how long one will live. These include:
(1) how much will the Social Security benefit be, (2) one’s tax bracket, and
(3) how many years before the benefits will be taken.